CPI for May 2025

The consumer price index (CPI), year-on-year, tracked sideways in May, unchanged from April’s 2.8%.

This was in line with expectations compiled by Reuters. Persistent subdued inflation underscores the MPC’s decision to lower the repo rate in May, in its fourth 25bp cut this cycle.

The primary contributors to the annual inflation rate were housing and utilities (4.5% and accounting for 1.0%), food and non-alcoholic beverages (4.8% and contributing 0.9%), and alcoholic beverages and tobacco (4.3% and contributing 0.2%).

Inflation is expected to remain subdued going forward, as last month the SARB revised down its forecast for 2025 and 2026 to 3.2% and 4.2% respectively. A key contributor to disinflation thus far has been, the lower oil price coupled with a stronger rand.

Unfortunately, both tailwinds are currently under threat given the recent outbreak of war between Israel and Iran which has driven the oil price higher and caused the rand to weaken. This is a prime example of why the SARB tends to be relatively hawkish with an eye on external factors which could suddenly impact domestic inflation and impact the rates outlook.

The theme of lower rates this year has been broad across the globe, with a handful of exceptions, such as the US, where inflation has been stickier. While the ECB has cut 9 times, halving its policy rate over the past year, the Fed has been much slower to cut given the tariff risks.

Looking ahead, the outlook for the global economy and financial markets is characterised by significant uncertainty and volatility, primarily driven by global trade tensions and their potential impact on economic growth and inflation.

Global growth is expected to slow, and inflation is likely to remain a concern. The SA economic recovery could therefore remain elusive, with domestic improvements potentially being offset by the deterioration in the global economy.

Equity markets have been surprisingly resilient this year against this backdrop, with the JSE having made new all-time highs, significantly outperforming global equities.